President Trump and Market Volatility

When you can't be sure what the "Leader of the Free World" will do or say on a daily basis, the world is full of surprises. Now this isn't a political blog, so why do you care?

With many of us using the stock markets to help fund our retirements, this uncertainty in the market makes fighting human nature even more challenging. As many of you will have noticed, the markets have been increasingly volatile these days. Up significantly one day, only to drop more the next. Often the valuations don't seem to be tied to any one policy change, but they can cause us all to question where the market is going.

This environment makes it increasingly difficult to follow the proven buy and hold strategies preached by most, including the good folks at Canadian Couch Potato. Furthermore, it makes it seem that this might be the opportunity we've all secretly been  waiting for to try our luck at timing the market. Maybe you're holding more cash than normal while you wait for the right opportunity to buy? Or perhaps, you've bought more than normal thinking the markets will continue to go up with the new President's policies.

Either way, you're doing yourself a disservice if you are in this game long term, as most investing in the stock market should be. Your best bet will always be to use index funds to invest in a wide swath of the market, and to buy on a regular basis regardless of how you feel the market may be going. This is the best way to reach your financial goals.

Putting your Finances on Autopilot

I got a panicked text from a friend's wife the other day which lead me to believe that their marriage might be over. She was panicked, considering leaving him, and all over.....money.

She felt betrayed by him lying to her about money, but after some discussion, she admitted that he wasn't really lying, in fact, he just didn't know the answers to her questions. His apathy had resulted in stagnant credit card debt, virtually no payments on a layaway item with significant interest to be applied in a few short months, and all because he hadn't been paying attention.

In reality, they both take home good incomes, and have very little debt. So why was he struggling. The reality was that he wasn't "paying himself first". Instead, he was wasting money on fast food impulses, despite having food in his house, and the time to make something. He admitted that this brought him no lasting pleasure, and therefore really didn't add any value to his life.

So what can he do to fix this? Well, as I said, he should pay himself first. Ideally, he should take money out of his pay check every payday and apply it directly to his highest interest debt. Next, he should sit down once a week and look at his bills. This isn't something that he will enjoy, but it will ensure that he doesn't miss any payments, and that he knows where his money is, and perhaps more importantly, should be going. In his particular case, he's fortunate that he could do this at work, and  free up  his personal time for the things he enjoys.

I had money with his wife a few days later, and was happy to hear that things between them had already improved. I think that having this discussion now, no matter how unfortunate, will only strengthen their relationship, and set them up to better meet their financial goals in the future.

Car Shopping

Next to buying a house, buying your car is likely going to be the biggest purchase of your life with implications 10 to 15 years into the future. Given how important this purchase is, it's incredibly important that you do your research, and come up with up a plan long before you step foot on the car lot.

The first thing you should consider is what you want in a car, and what you need in a car. For most people safety systems and size are the two biggest factors you should consider in the needs category. Wants, which can be just as important, are things like entertainment systems, design features, a more powerful engine, or leather seats, for example. Once you have a list of what it is you're looking for, it's time to look at what cars are available that match your requirements, and are in your price range.

Determining what you can afford is one thing, but you have to also consider what you should be spending on transportation. Although this will ultimately give you a monthly limit of what you can afford, the last thing you want to do is share this information with your car dealer. Most dealerships will try and distract you from the overall cost of a vehicle by discussing a monthly payment which in Canada can often be based on up to 84 monthly payments. the difference between payments for 48 months at 0 percent interest compared to 84 months at even 2 percent is more than $2000 on a $30000 vehicle. Also make sure to consider the total cost of ownership. This includes things like insurance, gas, and maintenance. these may be similar to a vehicle you already own, or they may increase significantly. It's important to know what may change with your new car, so do some research, and speak to your insurance broker.
 
Now that you've decided what you can afford, look at the terms of a purchase at your dealership of choice, and find out if you can afford the vehicle you want under those terms. Once you know if you can afford this vehicle, it's time to start negotiating. The best piece of advice I can offer on this subject is to remove the emotion, as best as you can. This can be extremely hard, especially as we often find ourselves in difficult situations leading up to the purchase of a new vehicle. The reality is that you need to ensure that the dealership thinks that they are more interested in completing the sale than you are. This puts the ball in your court for the negotiations.

If you're looking at a small car, there isn't a significant amount of room to negotiate on price anymore. For this reason, you should consider negotiating for items and add-ons that add a lot of value for you, but don't cost the dealership much. All weather floor matts, bumper protectors,  undercoating, and other accessories are all expensive for you, and don't cost the dealer as much. Negotiating this way allows you to both come out ahead.

When you are talking price, it's important to keep your cards to yourself as long as possible. I suggest
that you research applicable national incentives you may be eligible for, such as recent graduate rebates, loyalty incentives etc. By keeping these discounts to yourself, you can eat away at the dealer level profit as you discuss price, and after coming to a reasonable agreement, add on these discounts. In this way, the dealer can't claim that they are already losing money on the deal with all of your national level discounts. If you play your cards right, you should see your sales person smile once you reveal the discounts you're eligible for.

Keep in mind when you're negotiating that a lot of the money the dealership makes will come out of fees added on to the price of the vehicle. For this reason, you should always talk about the actual, cost, fees included, of the vehicle you're looking at. Getting a great price, and then paying significant amounts in administrative fees somewhat defeats the purpose of negotiating in the first place.

Once you've come to an agreement with the sales person, you can expect a trip to the financing office where you'll likely be presented with a number of extended warranty options, and other high profit add-ons. Dealerships wouldn't offer extended warranties if they didn't make money off of them for. That alone should be enough reason for you to say no.

The last, and biggest point, is that you need to be prepared to walk away. This may not be necessary, but knowing what alternatives you have, maybe another dealer who sells the same brand in a neighbouring town, or another car brand altogether, telling the dealer that you're willing to go elsewhere provides the dealer with a significant incentive to give you what you want. If you're being reasonable, there's a good chance the dealer won't let you leave, or they'll be in touch the next day to try and salvage the deal.

What did you learn during your negotiations. Comment below to help the community learn how your experience can save them money in the future.

Credit Card Review - Amazon Visa

The average credit card allows you to make purchases around the world without having to carry foreign currency, (just remember to set up a travel notification with your card issuer), but there’s a catch. Most cards will automatically exchange your purchases into your native currency while adding a 2.5% fee for the convenience. There are a few cards which don’t add this fee, but my favourite is the Amazon Visa card.

Like all cards, the Amazon Visa card uses the visa exchange rate and converts your purchases for you, but this card does it without adding on a conversion fee. On top of that you’ll also earn 2% back on purchases at Amazon.ca, and 1% back everywhere else. When you add it all up, you’ll come out way ahead relative to using the typical credit card. Below is an example to show you what I mean:

EXAMPLE

Spending $5000 on a regular credit card

Cost of your item(s)                         $5000
Currency Conversion (at 1.125)        $5625

Spending $5000 on your Amazon Visa

Cost of your item(s)                         $5000
Currency Conversion (at 1.10)        $5500

Savings                                             $125

The idea that you will regularly spend $5000 on your credit card may seem unreasonable, particularly if you're here to get financial advice to help get yourself out of debt. However, a family of four on a trip out of the country could easily spend $5000 on hotels, travel, food, and admissions over the course of a week or more. The average family staying at a Disney World hotel for example, could easily exceed this amount in less than a week.

I've said it before, and I'll say it again, if you're going to spend money, you may as well get rewarded for it. The Amazon Visa will save you the 2.5% convenience fee on your transaction, but it will also give you 2% back on purchases at Amazon.ca and 1% back on purchases everywhere else. When you consider that the best Credit Cards usually top out at 2% back, you're coming out way ahead when the foreign exchange convenience fee is added in.

Once you reach $20 in rebates, there will automatically be a $20 statement credit applied to your next bill. Plus, if you apply at Amazon.ca you'll get a $20 Amazon.ca gift certificate on approval.

Financial Checkups

Every couple of months, at a minimum, you should review your financial standing and how you are progressing towards your goals. In some circumstances you’ll need to do this review based on changes in your life instead of sticking to a firm timeline. These changes can include, but are not limited to, changes to the make up of your family, like the birth of a child, or moving, especially with a simultaneous career change, and changes to your financial situation, like an inheritance, a raise, or a temporary or permanent reduction in income. All of these situations necessitate the review of your finances. If you are the reason for this change, it’s important that you look at your finances before you voluntarily change your situation. I don’t pretend to be perfect, and despite reviewing my finances before I bought my house, I was very close to going into the red each month for about six months after I moved. Careful planning and consideration reduce the risk of making a financial mistake, but you can’t know of, or plan for, all eventualities.

The first step in your financial reviews should be a quick look at your budget, taking into account any
changes to your income or expenses. This will give you the necessary information to determine if you’ll need to make any changes to your spending or saving plans. There’s no point in cutting back on something that you enjoy and is a good value if you still have extra money at the end of the month. Similarly, you can’t spend more money following a raise, if your circumstances have allocated that money for you already.

Now that you know how your budget has been impacted, it’s time to reconsider those priorities of yours in order to ensure that everything is still in line with your goals. If at anytime your budgeted goals no longer reflect what you’re working towards, it’s time to review your budget or your goals. As you can see, if you’ve read some of the other posts on my blog, a lot of the topics we cover are related, and doing just one thing can’t help you achieve your goals.

Once you’re done with your financial review, you’ll know that you’re progressing as planned towards your next financial milestones. If your circumstances change, or a couple of months has passed by, it’s time to start all over again. As I wrote this post, I had the chance to reconsider my own financial goals, and I ended up making some tweaks to realign my budget with my goals. These exercises should help you to reduce financial stress and the stress and/or guilt you feel spending on yourself. The idea being that when you know how much money you have, and where it's going, spending within your budget can be guilt free.